Due to the increasing number of workers in many industries (though particularly IT) treating themselves as small business owners despite working for the same big business on a regular basis, HMRC introduced the IR35 legislation in an attempt to secure more tax and national insurance from them.
The three main criteria
The legislation itself is a nightmare to read, but several court cases and judge’s decisions have lead to a few basic points. You are caught by the rules if you meet all of the following criteria:
- Personal Service – If you have to do the work yourself. The ability to send a substitute to work in your place keeps you outside the rules. Please note this needs to be realistic. Having a clause in your contract that states “Joe Bloggs Ltd can send any one of its employees as a substitute for Joe Bloggs” is useless if you, Joe Bloggs are the only employee.
- Control – Employees have a duty of service to their master. If you are free to do the task how you want, when you want, and where you want, you are not an employee. HMRC accept performing the task at a time and place to suit the client does not necessarily make you an employee, as it is sometimes the only practical way.
- Mutual Obligation – The big business has to provide work, and you have to do it. You occasionally not assisting them because you have other client work to do can keep you outside the rules.
If, even after reading the above three criteria, it is still not entirely clear (it often isn’t), then there are other basic indicators to suggest that you are running your own business rather than an employee:
- Do you work for several different clients
- Do you provide your own equipment
- Do you have financial risk (e.g. put right errors in your own time/refund for bad work)
- Do you regularly promote your business, via advertising, networking, or other marketing
- Do you have a separate business telephone number / website / insurance / office space
- Do you invest in training / retain profits for “on the bench” time
- Are you registered with Data Protection / have ISO9000 accreditation
- Are you VAT registered / do you maintain detailed accounts
- Do you consider yourself as a business owner (the correct mindset is important)
If you’re nervous about the above (most contractors are due to the unclear nature of the legislation) then whilst there are a few providers out there, a lot of our clients use QDOS. They offer individual contract reviews, and also insurance packages to help defend your company against IR35. We can get our clients a discount off their prices.
NB whilst the underlying rules of IR35 remain as they have been for ages, see our article re April 2020 IR35 changes, as from then in most situations it will be the end client who is responsible for deciding on IR35 status.
Remember with the wonders of the internet, specifically the SaaS invoicing/bookkeeping package FreeAgent, we are able to help with our contractor accountancy package for clients anywhere in the UK!